Forex flows will continue, says Vepa Kamesam

Outgoing Reserve Bank of India (RBI) deputy governor Vepa Kamesam said the foreign exchange inflow will continue as India is emerging as a good investment destination. Kamesam, who took over the assignment in July 2001, stepped down yesterday.

"My feelings is that the inflows will continue. The world has seen enough opportunities in India and the country is a good place to deal with. The flows from foreign institutional investors (FIIs) will be there. The non-resident Indians too will continue to remit money here as they have been assured of the liberalisation in the country and their ability to take their money back (whenever they wish)," he said.

India is seen as the good investment destination, with IT taking off in a big way and trained manpower to handle the booming BPO industry and increasing number of BPO opportunities coming in, pointed out Kamesam.

At the same time he admitted that the rising forex inflows is a challenge before the RBI. "The liquidity will have to be managed. It's a challenge and I am sure RBI will handle it well," he said.

On being asked whether the central bank will make efforts to check the inflow, he said: "To the best of my knowledge there has been no effort (on the part of RBI) to check forex inflows."

On the government clamp down on corporations' external commercial borrowings (ECBs), Kamesam "" who handled exchange control department in the RBI "" said "it is a temporary measure".

"As you have noticed, we did not interfere in trade related transactions. It is a temporary measure which was felt necessary as everyone was going on a one-way street. We reviewed the risk that the corporates are taking and the mismatches," he clarified.

"Just like banks practise the concept of 'know your customers', what is the harm in knowing who are the lenders and where the capital is coming from?" he wondered.

On the budget budged proposal of increasing the foreign director investment (FDI) limit in private banks from 49 per cent to 74 per cent, Kamesam said the government clarify this "before long".

Kamesam, who also handled rural credit and urban cooperative banks, said 134 district cooperative banks are in trouble as they have eroded their deposit base and wiped out their capital.

"What we expect from the cooperative sector is better governance in running the banks. The board of cooperative banks are skewed in favour of the borrowers. They need to keep the interest of depositors in mind if they want to run the banks properly," he said.